Banks set sights on NSW power

Many senior bankers have been in contact with NSW Treasurer Mike Baird over the sale of electricity assets.
AFR

by
Stephen Shore

In a quiet market, the prospect of hundreds of millions of dollars in fees has bankers swarming over NSW Treasurer
Mike Baird
, who passed legislation to sell the assets on May 31 after striking a deal with the Shooters and Fishers Party.

Pitches to advise on the electricity generation sale are due on June 20. The adviser will be appointed by July 1.

Lazard and one other major investment bank are said to have already started preparatory work on the sales documentation. “Lazard has been at parliament telling Baird which assets will sell and what they’re likely to get," one source said. “Baird’s not starting fresh on this process."

Lazard may have to overcome legacy issues, however, following its role in the first round of electricity privatisation in 2010, after Mr Baird, then in opposition, criticised the level of advisory fees.

Many senior bankers have contacted Mr Baird in the past six months. “It’s going to be competitive, it’s one of the few games in town," one banker said. Credit Suisse, JPMorgan and boutique advisers including Gresham, Investec and Fort Street Advisers are also expected to be in the running for the lucrative mandate.

But the list is short because many of the top-tier investment banks face potential conflicts of interest in acting for the government.

The local utilities likely to be interested in the electricity assets are TRUenergy,
Origin Energy
and
AGL Energy
, and bankers with existing relationships with these companies are expected to face questions from the government about the impartiality of their advice.

Rothschild, Deutsche Bank, Bank of America Merrill Lynch and UBS are likely to be ruled out of the tender process, because of their roles advising Hong Kong-listed CLP on the $3 billion-plus float of TRUenergy.

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Citigroup advised AGL on its acquisition of Victoria’s Loy Yang A power station.

Citigroup’s work with AGL on Loy Yang will be over once the NSW electricity assets come up for sale, so it may have a chance of getting the government job if AGL appoints another advisor to look at NSW electricity.

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Investment banks that have recently worked for the NSW government might also be ruled out of the running for the generation assets, given the government rarely appoints the same banker twice in succession, preferring to share the work around.

As a result, Goldman Sachs, which advised on the sale of Sydney’s $2.3 billion desalination plant, and Morgan Stanley, which is advising on the sale of Port Botany and possibly Port Kembla, are considered extreme long shots to win the electricity sales gig.

Royal Bank of Scotland may struggle to put a compelling pitch together after losing key infrastructure deal makers Aaron Simcock and Michael Siede and top-rated utilities analyst Jason Mabee when CIMB Malaysia took over the local operations of the bank. CIMB has, however, retained Michael Lambert, the former NSW Treasury secretary and Kay Stuart, who worked on the $15 billion Queensland Asset Privatisation Program.

That leaves Credit Suisse, JPMorgan, and the boutiques. The boutiques may have to partner with an investment bank to access distribution networks.

Credit Suisse partnered with Lazard on the previous NSW electricity privatisation in December 2010.

JPMorgan is not involved in any conflicting deal, though it was alongside Macquarie on Origin’s $2.3 billion capital raising in 2011.

Despite the challenges, investment bankers are expected to pitch aggressively for the electricity advisory role as the corporate deal flow remains soft. Equity capital market activity in the year to date is at the lowest since 2003, according to Dealogic.

ISSUES APLENTY

Whoever wins the mandate will have its work cut out. The Australian Competition and Consumer Commission has indicated it will take a keen interest in the sales process, after AGL bought Loy Yang earlier this year.

Lazard, which counts former Labor Prime Minister
Paul Keating
and former Labor finance minister
Lindsay Tanner
among its advisers, helped the previous state government on the sale of three energy retailers – Energy Australia, Integral and Country Energy – as well as the electricity trading rights to four of its power stations and three development sites to TRUenergy and Origin Energy.

But in opposition at the time, Mr Baird and NSW Premier
Barry O’Farrell
led calls for an investigation into overspending on the process after the Keneally government spent $200 million on bankers, lawyers and advisers for the sale, or 3.8 per cent of the gross proceeds.

Mr Baird said at the time the cost was almost three times that of major privatisations conducted by the Queensland, Victorian and federal governments in the past 15 years.